Yet there is an ironic twist: Some Dodd-Frank regulations instead made it more costly for banks to issue small loans, harming many of the same families the legislation was intended to protect. Bank profits have been reduced because many closing costs are fixed, and processing small mortgages is essentially the same amount of work as large loans for less profit.
As a result, both here and nationally, many banks are limiting their participation in the small mortgage market. Since 2007, those mortgages under $ 100,000 have fallen by more than 50% in Forsyth County. Even when families apply for small loans, they face refusal rates two to three times higher than those for large loans. This is despite the fact that smaller loans are not riskier than larger ones, according to some of the best evidence available.
A major complication in Forsyth County is the relatively poor physical condition of these cheaper homes – which are heavily concentrated in East Winston. National and local homeownership programs designed to help low-income first-time buyers purchase homes are rigorously inspected and these homes struggle to pass, which can compromise the ability to obtain a mortgage loan.
Here are the consequences: Over the past 20 years, our data shows a complete reversal in the way affordable homes are purchased. In 2001, about 74% of small homes were financed by mortgages, but by 2021, that number had fallen to 25%. This means that three quarters of small homes are bought for cash by investors or high net worth individuals. Families who are excluded from homeownership and wealth-building opportunities get stuck with ever-increasing rents or find themselves trapped in predatory loan deals.